Answers

How much life insurance do I need?

You buy life insurance because you want to protect your dependents when you die. That means looking carefully at what expenses you expect them to face upon your death and what monthly sum is needed in order for them to manage without your income. One rule of thumb is to buy a policy with a death benefit that equals five and seven years of your gross income. More information...

How do I get a life insurance policy that offers the best value for my money?

By comparing online quotes on this site, you'll get a wide variety of choices between different insurance companies, rates and benefits. To ensure you get the best value for your money, make sure you evaluate the benefits of each policy against its rates-don't just choose the cheapest option.

Should my spouse and I have separate life insurance coverage?

You can each have your own separate policy or, if it is more cost-effective, you can have one policy with a spouse rider attached.

Should I consider insuring the lives of my children?

While your main priority should be to insure the adults in the household who are responsible for paying the bills, insuring children is also a savvy financial move. Not only can it help in the unlikely and unfortunate event of their death, but it also creates a great financial start for them when they become adults.

What is term life insurance?

Term life insurance gives you protection for a fixed period of time. If you die during this period, the policy pays out the death benefit. If you live, there is no payment. You should always consider buying a convertible term policy that allows you to change over to a permanent policy later on. The advantage of this type of policy is that you can buy high death benefits for low premiums when you are young.

What is permanent life insurance?

Permanent life insurance gives you coverage over your entire life as long as premiums are paid by you or out of the cash values that permanent policies accrue. You can also surrender the policy in whole or part, or use the cash to buy an annuity (1035 exchange). Permanent insurance comes in many different forms including whole life, universal and variable life.

What is a universal life insurance policy?

A universal life insurance policy is a permanent policy that allows you to vary the amount you pay as premiums between set minimum and maximum limits. You may also be allowed to change the death benefit over the life of the policy.

What is a variable life policy?

A variable life insurance policy is a permanent policy that allows you to direct how the cash values are invested between subaccounts that contain multiple stocks, bonds and other investments. The cash amount and death benefits can vary depending on how this portfolio of investments performs.

What is the cash value of a permanent life policy?

Cash values are the accumulated portions of a percentage of the premium paid. This sum adds to the fixed death benefits under the life insurance element. If you make good investment decisions with a variable policy, the cash value can grow exponentially. Equally, the value of your investments can fall. You can borrow or draw down this money during your lifetime.

Do I pay taxes on the growth of my cash values?

Cash values grow in the policy tax-free as long as the value of the cash value never equals or exceeds that of your death benefit. When this happens, your policy turns into a modified endowment contract (MEC) and this is a taxable event-whether you remove the money or not. You can take loans against your cash value without triggering any taxable event as well. Should you decide to surrender your policy you may be subject to capital gains tax on the amount of cash surrender value that exceeds premiums paid. Federal income tax is not imposed on death benefits which makes life insurance a useful tax planning tool for those who have a large estate to pass on.